What changed in this filing

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Item 1A. Risk Factors

2021-12-10 compared with 2021-09-08 · 55 added, 36 removed, 838 unchanged (10% of the section changed)

14 unchanged sentences

Shortages in, or increased costs of, wafers and materials could increase the manufacturing times for our products and adversely impact our ability to meet customer demand, reduce our gross margins and lead to reduced revenues.

Camera manufacturers incorporate components supplied by multiple third parties, and a supply shortage or delay in delivery of these components could delay orders for our solutions by our customers.

We do not have long-term supply contracts with our third-party manufacturing vendors, and they may not allocate sufficient capacity to us at reasonable prices to meet future demands for our solutions.

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If we fail to retain or expand our customer relationships, our revenue could decline.

We are subject to risks related to our ability to successfully integrate and to realize anticipated synergies, on a timely basis or at all, in connection with the Oculii Corp.

merger and other strategic transactions we may undertake.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

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Deterioration of the financial conditions of our customers could adversely affect our operating results.

Camera manufacturers incorporate components supplied by multiple third parties, and a supply shortage or delay in delivery of these components could delay orders for our solutions by our customers.

We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased costs.

Third parties’ assertions of infringement of their intellectual property rights could result in our having to incur significant costs and cause our operating results to suffer.

Any potential dispute involving our patents or other intellectual property could affect our customers, which could trigger our indemnification obligations to them and result in substantial expense to us.

Any potential dispute involving our patents or other intellectual property

could affect our customers, which could trigger our indemnification obligations to them and result in substantial expense to us.

Some of our operations and a significant portion of our customers and our subcontractors are located outside of the United States, which subjects us to additional risks, including increased complexity and costs of managing international operations and geopolitical instability.

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Disruptions may also adversely affect our customers’ ability to manufacture their products, which in turn could reduce their demand for our products.

For example, Taiwan recently experienced a significant rise in cases of COVID-19 that, if such conditions persist or worsen, could impact our third-party contractors’ ability to assemble, test and ship our products and negatively impair our operations and financial results.

The semiconductor industry in general is currently experiencing significant shortages of capacity, due in part to COVID-19, which has resulted in a lengthening of the manufacturing lead time for our products and could be impacting the normal forecasting and ordering patterns of our customers.

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It is also possible during this time of supply chain capacity shortage that customers may place orders for our products that exceed their actual demand, which may lead to us manufacturing a surplus of products and could have a negative impact on our results or operations and cash reserves.

Our primary inventory warehouse is located in Hong Ko ng and may be affected by continued political, social and economic conditions in Hong Kong.

Our primary inventory warehouse is located in Hong Kong and may be affected by continued political, social and economic conditions in Hong Kong.

We operate a warehouse facility in Hong Kong through which the substantial majority of our finished SoCs are shipped to customers or logistic partners.

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In fiscal year 2021, the customers representing 10% or more of our revenue were WT Microelectronics Co., Ltd., formerly Wintech Microelectronics Co., Ltd., or Wintech, our distributor, and Chicony Electronics Co., Ltd., or Chicony, a direct ODM customer, which accounted for approximately 63% and 16% of total revenue, respectively.

For the six months ended July 31, 2021, the customers representing 10% or more of revenue were Wintech and Chicony, which accounted for approximately 62% and 16% of total revenue, respectively.

For the nine months ended October 31, 2021, the customers representing 10% or more of revenue were Wintech and Chicony, which accounted for approximately 63% and 15% of total revenue, respectively.

We believe that our operating results for the foreseeable future will continue to depend on sales to a relatively small number of customers and end customers.

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If we were unable to generate revenue after incurring substantial expenses to develop any of our solutions, our business would suffer.

Some of our customers may require our products and our third-party contractors to undergo a qualification process that does not assure product sales.

If we are unsuccessful or delayed in qualifying these products or third-party contractors with a customer, our business and operating results could suffer.

Prior to purchasing our products, some of our customers, particularly in the automotive market, may require that our products and our third-party contractors undergo extensive qualification processes, which involve testing of our products in the customers’ systems, as well as testing for reliability.

This qualification process may take several months and qualification of a product by a customer does not assure any sales of the product to that customer.

Even after successful qualification and sales of a product to a customer, a subsequent revision in our third party contractors’ manufacturing process or our selection of a new supplier may require a new qualification process, which may result in delays and in our holding excess or obsolete inventory.

After our products are qualified, it can take several months or more before the customer commences volume production of components or systems that incorporate our products.

Despite these uncertainties, we devote substantial resources, including design, engineering, sales, marketing and management efforts, to qualify our products with customers in anticipation of sales.

If we are unsuccessful or delayed in qualifying these products with a customer, sales of the products to the customer may be precluded or delayed, which may impede our growth and cause our business to suffer.

We expect competition to increase in the future, which could have an adverse effect on our revenue and market share.

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Our competitors range from large, international companies with greater resources offering a wide range of semiconductor products to smaller, nimble companies specializing in narrow markets.

In the security camera market, our primary competitors include AMLogic Inc., HiSilicon Technologies Co., Ltd., or HiSilicon, which is owned by Huawei Technologies Co., Ingenic Semiconductor Co., Ltd., Novatek Microelectronics Corp., or Novatek, OmniVision Technologies, Inc., Qualcomm Incorporated, or Qualcomm, SigmaStar Technology Corp., Socionext Inc., or Socionext, an entity created from the merger of the system LSI businesses of Fujitsu Ltd.

In the security camera market, our primary competitors include AMLogic Inc., Axera Technology Co., Ltd., Goke Microelectronics Co., Ltd., HiSilicon Technologies Co., Ltd., or HiSilicon, which is owned by Huawei Technologies Co., Ingenic Semiconductor Co., Ltd., Lumissil Microsystems, Novatek Microelectronics Corp., or Novatek, OmniVision Technologies, Inc., Qualcomm Incorporated, or Qualcomm, SigmaStar Technology Corp., Socionext Inc., or Socionext, an entity created from the merger of the system LSI businesses of Fujitsu Ltd.

and Panasonic Corporation, and Texas Instruments Incorporated, or Texas Instruments, as well as vertically integrated divisions of security camera device OEMs, including Axis, Hanwha Techwin, and Google LLC, which is owned by Alphabet, Inc.

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Our research and development expense was $140.8 million, $129.7 million and $128.1 million in fiscal years 2021, 2020 and 2019, respectively.

For the six months ended July 31, 2021, our research and development expense was $77.4 million.

For the nine months ended October 31, 2021, our research and development expense was $118.8 million.

We expect to increase our research and development expenditures as compared to prior periods as part of our strategy of focusing on the development of innovative computer vision, video and image processing solutions with increased functionality, and as we target new markets, such as the automotive OEM and robotics markets.

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Our future success depends on our continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization.

Our industry is characterized by high demand and intense competition for talent.

Our industry is characterized by high demand and intense competition for talent, particularly for engineering personnel.

The pool of qualified candidates is limited, particularly in Silicon Valley and parts of Asia for very-large-scale integration, or VLSI, and artificial intelligence and computer vision engineers, and certain of our competitors and potential competitors with greater resources have directly targeted our employees.

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Deterioration of the financial condition of our distributors or customers could adversely impact our collection of accounts receivable.

For the six months ended July 31, 2021, the customers representing 10% or more of revenue and accounts receivable were Wintech and Chicony, which accounted for approximately 62% and 16% of total revenue, respectively.

As of July 31, 2021, accounts receivable with Wintech and Chicony were approximately $17.7 million and $12.6 million, respectively.

For the nine months ended October 31, 2021, the customers representing 10% or more of revenue and accounts receivable were Wintech and Chicony, which accounted for approximately 63% and 15% of total revenue, respectively.

As of October 31, 2021, accounts receivable with Wintech and Chicony were approximately $23.5 million and $12.4 million, respectively.

We regularly review the collectability and creditworthiness of our distributors and customers to determine an appropriate allowance for credit losses.

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work stoppages.

We may make acquisitions in the future that could disrupt our business, cause dilution to our shareholders, reduce our financial resources and harm our business.

In the future, we may acquire other businesses, products or technologies.

Other than our acquisition of VisLab S.r.l., or VisLab, in June 2015, we have not made any acquisitions to date and do not have any commitments for any specific acquisition at this time.

Our acquisition of Oculii Corp.

involves a number of risks, including, among others, risks associated with our use of a significant portion of our cash, other financial risks, integration risks, and risks associated with the reactions of customers and suppliers.

On November 5, 2021, we completed our acquisition of Oculii Corp.

In connection with the transaction, Oculii became a wholly owned subsidiary of the Company.

The benefits we expect to realize from this acquisition will depend, in part, on our ability to integrate the businesses successfully and efficiently.

We entered into the merger agreement with Oculii with the expectation that the merger will result in various benefits to us, including certain technology and operational efficiencies or synergies.

To realize these anticipated benefits, the businesses and certain technologies of Ambarella and Oculii must be successfully integrated.

Historically, Ambarella and Oculii have been independent companies, and they were operated as such until the completion of the merger.

The integration may be complex and time consuming and may require substantial resources and effort.

Our management may face significant challenges in consolidating the operations of Ambarella and Oculii, integrating the technologies, procedures, and policies, as well as addressing the different corporate cultures of the two companies and retaining key personnel.

If the companies or technology are not successfully integrated, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

Our existing or prospective customers, licensees, suppliers and/or partners may delay, defer or cease purchasing products or services from or providing products or services to us, delay or defer other decisions concerning us, or otherwise seek to change the terms on which they do business with us.

Any of the above could harm us, and thus decrease the benefits we expect to receive from the merger.

In addition, the acquisition may also result in significant charges or other liabilities, including taxes, that could adversely affect our results of operations, such as cash expenses and non-cash accounting charges incurred in connection with the acquisition and/or integration of the business and operations of Ambarella and Oculii.

The amount and timing of these possible charges are not yet known.

Further, our failure to identify or accurately assess the magnitude of certain liabilities we are assuming in the transaction could result in unexpected litigation or regulatory exposure, unfavorable accounting charges, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, results of operations, financial condition or cash flows.

The Oculii acquisition or potential future acquisitions involve a number of risks, including, among others, those associated with our use of a significant portion of our cash and other financial risks.

We used a significant portion of our cash in connection with the acquisition of Oculii, which was completed on November 5, 2021.

Our use of cash to fund the Oculii acquisition has reduced our liquidity and any future acquisitions may also reduce our liquidity.

Using cash to fund acquisitions may (i) limit our flexibility in responding to other business opportunities and (ii) increase our vulnerability to adverse economic and industry conditions.

Our acquisition of Oculii and any acquisitions we may make in the future could disrupt our business, cause dilution to our shareholders, reduce our financial resources and harm our business.

Prior to our acquisition of Oculii, we had not made any acquisitions since our acquisition of VisLab S.r.l., or VisLab, in June 2015.

Our ability to make and successfully integrate acquisitions is unproven.

Future acquisitions may not strengthen our competitive position and may be viewed negatively by our customers, financial markets or investors, and we may not achieve our goals in a timely manner, or at all.

The Oculii acquisition and any future acquisitions may not strengthen our competitive position and may be viewed negatively by our customers, financial markets or investors, and we may not achieve our goals in a timely manner, or at all.

In addition, any acquisitions we make could lead to difficulties in integrating personnel, technologies and operations from the acquired businesses and in retaining and motivating key personnel from these businesses.

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We incurred a net loss in fiscal years 2021, 2020, and 2019, respectively.

For the six months ended July 31, 2021, while our revenue increased by 42.7% compared to the same period in fiscal year 2021, we incurred a net loss of $18.0 million.

For the nine months ended October 31, 2021, while our revenue increased by 50.2% compared to the same period in fiscal year 2021, we incurred a net loss of $17.2 million.

We may experience similar fluctuations or declines in revenue or net losses in the future, which would harm our financial results.

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We incurred net loss in fiscal years 2021, 2020, and 2019, respectively.

For the six months ended July 31, 2021, while our revenue increased by 42.7% compared to the same period in fiscal year 2021, we incurred a net loss of $18.0 million.

For the nine months ended October 31, 2021, while our revenue increased by 50.2% compared to the same period in fiscal year 2021, we incurred a net loss of $17.2 million.

Accordingly, if we are unable to generate or maintain adequate revenue growth, our financial results could suffer and our stock price could decline.

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Sales to customers in Asia accounted for approximately 88%, 90% and 87% of our total revenue in fiscal years 2021, 2020 and 2019, respectively.

For the six months ended July 31, 2021, sales to customers in Asia accounted for approximately 89% of our total revenue.

For the nine months ended October 31, 2021, sales to customers in Asia accounted for approximately 88% of our total revenue.

Because most of our end customers or their ODM manufacturers are located in Asia, we anticipate that a majority of our future revenue will continue to come from sales to that region.

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If additional financing is not available when required or is not available on acceptable terms, we may have to scale back our operations or limit our production activities, and we may not be able to expand our business, develop or enhance our products, take advantage of business opportunities or respond to competitive pressures which could result in lower revenue and reduce the competitiveness of our products.

Our marketable securities portfolio could experience a decline in market value, which could materially and adversely affect our financial results.

As of July 31, 2021, we had approximately $215.0 million in debt security investments.

These investments consisted primarily of money market funds, commercial paper, asset-backed securities, U.S.

government securities and debt securities of corporations.

We currently do not use derivative financial instruments to adjust our investment portfolio risk or income profile.

These investments, as well as any cash deposited in bank accounts, are subject to general credit, liquidity, market and interest rate risks, which may be exacerbated by unusual events, such as the COVID-19 pandemic, the Eurozone crisis and the U.S.

debt ceiling crisis, which affected various sectors of the financial markets and led to global credit and liquidity issues.

If the global credit market continues to experience volatility or deteriorates, our investment portfolio may be impacted and some or all of our investments may experience other-than-temporary impairment which could adversely impact our financial results and position.

Risks Related to Our Dependence on Third Parties

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We sell a significant percentage of our solutions through a single distributor, Wintech, which serves as our non-exclusive sales representative in Asia, other than Japan.

Approximately 63%, 60% and 58% of our revenue was derived from sales through Wintech for the fiscal years ended January 31, 2021, 2020 and 2019, respectively, and approximately 62% of our revenue was derived from sales through Wintech for the six months ended July 31, 2021.

Approximately 63%, 60% and 58% of our revenue was derived from sales through Wintech for the fiscal years ended January 31, 2021, 2020 and 2019, respectively, and approximately 63% of our revenue was derived from sales through Wintech for the nine months ended October 31, 2021.

We anticipate that a significant portion of our revenue will continue to be derived from sales through Wintech in the foreseeable future.

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EXHIBIT INDEX

Agreement and Plan of Merger, dated October 26, 2021, by and among Ambarella, Inc., Ohio Merger Sub, Inc., Oculii Corp.

and Shareholder Representative Services LLC.

Amended and Restated Memorandum of Association and Second Amended and Restated Articles of Association of the Registrant.

Ambarella, Inc.

2021 Equity Incentive Plan.

Amendment No.

6 to Sales Representative Agreement dated May 1, 2021 by and between Ambarella, Inc.

and WT Microelectronics Co., Ltd.

Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

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Inline XBRL Taxonomy Presentation Linkbase Document

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2021, has been formatted in Inline XBRL and included in Exhibit 101.

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2021, has been formatted in Inline XBRL and included in Exhibit 101.

Incorporated by reference to the Registrant’s current report on Form 8-K as filed with the Securities and Exchange Commission on October 26, 2021.

Incorporated by reference to the Registrant’s registration statement on Form S-1 (No.

1 unchanged sentence

3 as filed with the Securities and Exchange Commission on September 12, 2012.

Incorporated by reference to the Registrant’s current report on Form 8-K as filed with the Securities and Exchange Commission on June 23, 2021.

In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No.

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AMBARELLA, INC.

September 8, 2021

December 10, 2021

/s/ Feng-Ming Wang

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President and Chief Executive Officer

September 8, 2021

Chief Financial Officer

December 10, 2021

/s/ John Young

Vice President, Finance

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors